Austria: Public Sector Inefficiencies Have Become Less Affordable

Performance of fiscal policy, while good in international comparison, is not sufficient to prepare for futureageing-related spending increases. Subject to macroeconomic developments, the pace of consolidation could bemore ambitious than currently planned, with a view to reducing the debt burden below 60% of GDP by 2020.Austrian fiscal policies have tended to be pro-cyclical in upturns, mainly because spending was not adequatelykept in check. Stronger fiscal rules and a reform of inter-governmental fiscal relations could help containexpenditure dynamics. Efficiency-raising reforms in key spending areas such as pensions and other socialexpenditures, health, and education are also highly needed to reduce spending and ensure the provision ofhigh-quality public services at lower cost. In this regard, Austria should make full use of the performancebudgeting framework it plans to introduce from 2013. Higher potential growth could also take off some of thepressure on public finances. There remains significant room to rebalance the tax structure towards less distortivesources of revenue, thus supporting employment and growth.